Euphoria Corp.operates in a world where there are no taxes of any kind.Euphoria Corporation's balance sheet on 31 December X1 shows shareholders' equity at 5,000 CU,long-term debt at 5,000 CU (interest on these loans is 5%)and accounts payable at 5,000 CU.The income statement for X1 shows that for sales of 15,000 CU the gross margin was 8,000 CU.The COGS includes 2,500 CU of depreciation expenses.Selling General and Administrative expenses amount to 5,500 CU which include,among other items,a 500 CU personnel training expenses for new technologies of production,500 CU spent on developing a new logo and its launch and total depreciation expenses of 1,500 CU.In addition Euphoria spent 1,000 CU on R&D in X1.The market expectation regarding return on long-term capital in the risk class where Euphoria operates is considered to be 15%.Intellectual investments are considered to benefit the firm for 4 years.What is the EVA of Euphoria for X1?
A) 1,275 CU
B) 1,500 CU
C) 1,725 CU
D) 1,000 CU

Question

Quizplus · Accepted Answer

EVA = NOPAT - (WACC * Capital)NOPAT = EBIT * (1-tax rate)EBIT = Gross Margin - SG&A - DepreciationGross Margin = Sales - COGSCOGS = Purchases + DepreciationPurchases = Sales - Gross MarginDepreciation = 2,500 CU + 1,500 CU = 4,000 CUSG&A = 5,500 CUSales = 15,000 CUWACC = (5% * 5,000 CU) / (5,000 CU + 5,000 CU) = 2.5%Capital = 5,000 CU + 5,000 CU = 10,000 CUNOPAT = (8,000 CU - 5,500 CU - 4,000 CU) * (1-0) = 1,500 CUEVA = 1,500 CU - (2.5% * 10,000 CU) = 1,275 CU